Cash Flow is King (Tips for Entrepreneurs)

Once cash hits your bank account, you have one primary job: Manage Cash Flow!

I want to talk a bit about cash flow today… and, specifically, what you have to do once cash starts hitting your bank account.

As an entrepreneur and CEO, once you have cash coming into your business, you have one primary job…

To manage your cash flow!

Money coming in, money going out. Understanding the available runway based on project expenses.

Deciding if you want to maximize your profits… or invest in growth.

Truth is – and I’ll be 100% blunt here – cash flow can be scary and stressful shit. It will keep you up at night, overthinking every decision you make. You’ll be frustrated when things don’t go according to plan, and you’ll agonize over how to manage your money.

And you won’t be alone – every Canadian entrepreneur (or entrepreneur anywhere!) that I’ve ever met feels the same way.

But here’s the funny thing about Cash Flow… YOU control where it flows.

Changing How You Look at Cash Flow

Here’s an interesting and simple way to look at the cash flow of a business…

It’s like water in a bucket.

Money is the water, it never really wants to sit still. It will always try to flow, no matter what.

The more it can flow = the more money you can make.

If you want your money to grow, you have to control the flow of money to the right places.

So think of it like water… and think of your small business as a bucket with holes at the bottom.

Take a look at this little diagram to see what I mean:

Cash Flow is King

Horrible drawing aside, this is a great way to visualize cash flow.

The bucket is your business and the holes at the bottom are your expenses. The water flowing in from the top is your income, and the water in your bucket is your cash reserve.

Your job as a business owner is to keep enough water in your bucket at all times.

There’s only one way to fill your bucket… more cash.

Keeping Your Bucket Full

Cash can come from many sources. Of course, selling your products and having customers put cash into your bucket is the most sustainable way (and the #1 goal of any business) – but you can also fill your bucket from bank loans, investment capital, etc.

No matter how you fill your bucket, there will ALWAYS be holes at the bottom of your bucket and cash will always flow out because you will always have expenses. It costs money to operate your business.

The bigger your bucket is, the more holes there will be at the bottom, but the more capacity your business will have.

As CEO, your primary objective is to never let the bucket run out of water… and you also get to choose where that water flows.

Maximizing for Profits or Growth

As I mentioned before, there are two things you can maximize in your business: Profits or Growth.

If you are maximizing for profits, then your objective is to reduce the number of holes in the bottom of your bucket.

This will allow you to pay off your debt, buy new things, travel, “live life”… but doing this will mean that your bucket stays at a specific capacity because you aren’t investing in a team or systems to scale.

If you are investing in growth, then your objective is to CONTROL where the cash going and to flow that cash into activities that will either:

  • Increase the capacity of your bucket (i.e. invest in a team to help you build a bigger bucket, better operations, etc.). This will allow you to fill your bucket to higher levels.
  • Increase how much water is flowing into your bucket (i.e. invest in marketing and sales strategies that will generate more customers).

When you break it down like this, it’s easy to visualize and manage your #1 resource.

A Tip for Visualizing Your Cash Flow

Once you’ve decided whether you’re going to maximize for profits or for growth, it’s important that you know exactly what your cash flow is at all times so you can make sure you stay on track.

There’s a easy way to do this with a simple spreadsheet.

And yeah, I know… if you’re here, you probably know how I feel about spreadsheets.

In fact, I built an entire business at Funnelytics around how much I hate trying to visualize funnel data from spreadsheets.

But stick with me, here…

To visualize your cash flow, all you need to do is put together a simple spreadsheet that you update every week with the following:

  1. Cash Added
  2. Cash Out
  3. Weekly Cash Flow (Cash Added – Cash Out)
  4. Closing Cash Balance (Last week’s balance + Weekly Cash Flow)
  5. Available Weekly Runway Worst Case (Closing Balance / Average Weekly Expenses)
  6. Available Weekly Runway Current (Closing Balance / Average Weekly Cash Flow)

These 6 numbers will give you a snapshot of the health of your business and you can make ANY decision based on what #5 and #6 tell you.

It’s as simple as that!

I hope this has helped you think about cash flow in a different way. If it has, pop over to Facebook and let me know.

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